Venture capitalists in the US invested US$4.6bn in 674 companies in Q1 2005, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. While this was lower than the Q4 2004 figure of US$5.4bn, it was equal to Q3 2004. Over the past two years quarterly investing has floated between US$4.4bn and US$5.9bn.
The value and number of first-time financings climbed slightly to US$1.2bn in 197 companies in Q1 2005, up from the US$1.1bn average of last year. Such fundings made up 26% of all VC investments compared to 21% in 2004, making it the largest proportion since 2000. In Q1 2005, 123 early stage companies attracted an average of US$4.5m per company for their first round of funding, while 36 expansion stage companies got an average of US$11.4m, and nine later stage companies an average of US$20.1m.
The life sciences sector saw investment fall by over half a billion dollars, from the Q4 2004 figure of US$1.6bn to Q1 2005 recording US$1.08bn. This is the lowest amount since Q1 2003. A total of 129 life sciences companies were funded versus 162 in the prior quarter. The sector accounted for 19% of all deals and 23% of all dollars during the period, still a solid level, reflective of recent market conditions.
The software industry remained the largest single sector with 198 companies receiving US$1.1bn in financing. Both figures are marginally down from the previous quarter, but software represented the biggest draw for VCs, with the sector getting 24% of venture funding in Q1 and 29% of all deals, in line with historical norms.
Telecommunications investing continued to decline with 58 companies capturing US$371m, significantly below its average over the last two years. The networking sector saw a slight upturn with US$348m invested in 40 companies, but even this is still below its two-year average.
Mark Heesen, president of the National Venture Capital Association, said: “Venture investment was indeed down this quarter, but it still fell within the US$4bn to $6bn range that we consider to be at a rational, investable, performance-driven equilibrium. We would like to see the industry stay within this ‘RIPE zone’ for the remainder of the year, as a US$20bn to US$23bn annual investment level is a logical place to be considering market conditions. We are also looking for a noticeable up tick in the percentage of earlier stage deals which has yet to occur, but we anticipate taking place as venture capitalists begin to deploy recently raised new funds.”